Zipvit: diluting the fundamental right to recover input VAT?

Should a customer lose its ability to claim input tax credit for the VAT which its supplier should have accounted to HMRC in respect of the relevant supplies? Logic dictates that this right should not be lost; but that is not the decision the UT ultimately reached in Zipvit.

The Upper Tribunal (UT) in Zipvit [2016] UKUT 294 (reported in Tax Journal, 8 July 2016) upheld in part the decision of the First-tier Tribunal (FTT) that the taxpayer was unable to recover VAT it claimed was embedded in amounts paid to Royal Mail for postal services. This was despite Proudman J criticising the FTT for going ‘off on a frolic of its own’ in incorrectly analysing some of the key legal principles at issue.

The facts in this case were as follows. Zipvit paid for postal services supplied by Royal Mail and was provided with an invoice, which stated that there was no VAT paid, as the supply was exempt (in accordance, purportedly, with article 13A(1)(a) of the Sixth Directive (now the Principal VAT Directive)).

The CJEU in TNT Post (Case C-357/07) subsequently clarified that the postal exemption for VAT which Royal Mail had been relying on was limited. It could only apply to supplies by the universal postal service operator operating as such; and, therefore, could not apply to services for which the terms had been ‘individually negotiated’. The ‘MailMedia’ services supplied to Zipvit were treated by Royal Mail as exempt, but were in fact, standard rated. !ere were, however, two main issues in dispute: